Q2 2022 NIO Inc Earnings Call
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Hello, ladies and gentlemen. Thank you for standing by and welcome to the NeoInk second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. Please note today's conference call is being recorded. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Ms. Eve Tong from Capital Markets. Please go ahead, and press the star key.
Thank you for standing by and welcome to the NeoInc second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. Please note today's conference call is being recorded. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Ms. Eve Tong from Capital Markets. Please go ahead, Eve. favourite
Good morning and good evening everyone. Welcome to the new the second quarter 2022 earnings conference poll. The company's financial and operating results were published in the press release earlier today and are posted at the company's IR website. On today's poll we have Mr William Ling, founder chairman of the board and the chief executive officer, Mr Stephen Fung, chief financial officer, Mr Sami True.
Senior VP of Finance and Mainstay Way, VP of Capital Markets.
Before we continue, please be kindly reminded that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Education Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today.
Further information regarding risks and uncertainties is included in certain filings of the company with the US Securities and Exchange Commission, the Stock Exchange of Hong Kong Limited, and the Singapore Exchange Securities Trading Limited. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that yields earnings press release.
and this conference call includes discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Please refer to the news press release which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures.
With that, I will now turn the call over to our CEO , Mr. William Lee. William, please go ahead.
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Hello everyone, thank you for joining NIO's Q2 2022 earnings call.
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New delivered a total of 25,059 vehicles in 2022, representing a 14.4% increase year over year. In July and August 2022, new delivered 10,052 and 10,677 vehicles respectively, marking increases of 26.7% and 81.6% year over year.
During this period, the company's vehicle production and delivery were faced with challenges from the COVID-19 pandemic, extreme weather conditions, and supply chain uncertainties.
We will work closely with our supply chain partners to further accelerate the production and delivery of our vehicles.
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and the second half of 2022 with the delivery and production ramp up of EC7, ES7 and ET5 based on the NT2 platform and the upgraded 2022 ES8 and ES7. Thank you for your attention.
CS6 and EC6. We expected the total delivery in the third quarter of 2022 to be between 31,000 to 33,000 units.
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In terms of financial performance, despite the significant increase in battery costs in Q2, the vehicle growth margin reached 16.7%, contributed by the deliveries of ET7 with high specifications, part of the orders with adjusted prices, and refined management of the sales policies.
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Next, I would like to share some recent key highlights of our R&D and operations.
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the first product based on the NT2 platform, the ET7 has demonstrated a strong product competitiveness in the large premium event segment.
with its industry leading software and hardware platforms and the smart digital experience.
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On June 15th, NIO launched the ES7 of a large 5-liter SUV based on the NG2 platform, inheriting NIO's high-performance DNA. The ES7 boasts ultimate driving, handling and safety performance.
creating comfort and the intelligent experiences beyond expectations.
In addition, ES7 offers an electric tow bar as an option, enabling a new outdoor experience with a towed touring caravan.
Since the start of the user test drive in August , the ES7 has been well received in the market and kicked off deliveries at scale starting from August 28.
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We have also launched the 2022 ES8, ES6 and EC6 fitted with new digital system ALDA, which comprehensively encounters the perception unit and computing power. The three products offer richer digital corporate experience and have strengthened their competitiveness in the market.
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The mass production preparation of the ET5, a mid-sized smart electric sedan based on NT2, is also in full swing while its performance and configurations have been further optimized and enhanced, compared with those at the time of the product launch.
With pure and progressive design, ultimate performance, and outstanding intelligent experience, the comprehensive competitiveness of the UT5 far surpasses the peers in the same segment.
We are confident that ET5 will become one of the most popular mid-sized premium sedans. The production order confirmation of ET5 will start from September 9 and the first batch will be delivered to users on September 30.
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With regards to digital systems, we released the Banyan 1.1.0 based on NT2 in August with over 60 new features and optimizations. In terms of the digital carpet and the driving experience.
This update has introduced more modes under the parking scenario, diversified the audio and the video experience in the cabin, and further optimized the suspension comfort and the vehicle handling. In the aspect of the advanced driver assistance system, we have further upgraded the environment simulation display and automatic emergency braking, which has enhanced the interaction experience and the driving safety for the users.
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As for production, we rolled the first batch of ET5 pre-production vehicles off the production lines at meals factory 2 at meal park and we plan to start the mass production this month.
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With regards to sales and service network, we now have 395 new houses and new spaces in 149 cities across the globe and 263 new service centres and delivery centres covering 151 cities in the world.
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In terms of charging and swapping networks, we have built an expressway power swapping network covering five vertical and three horizontal expressways and four metropolitan areas in China. We have installed 1,094 power swap stations, including 285 situated by the expressways and completed over 12 million battery swaps for our users.
At the same time, we have deployed 1,873 power charger stations, including 5,341 power chargers and 5,466 destination chargers.
and connected with more than 560,000 third-party chargers, offering over 860,000 times over one click for power services.
NIO is dedicated to putting in place a power system with chargeable, swappable and upgradeable experiences.
makes the recharging experience better than refilling. To this end, we have been making continuous investments.
With a vertical and horizontal network across the country and a hub and a spoke laid out in the metropolitan areas, we aim to bring a more convenient and joyful travel experience for our users. Don't forget to subscribe!
Thank you.
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Power swab stations are not only efficient retarding facilities, but also serve as virtual power plants.
During this summer, we responded to power-grade peak shavings in different cities by over 100 stations. In the meantime, up to 60% of the stations are regularly involved in the off-peak charging by increasing the electricity consumption in off-peak hours.
to support energy saving and emissions reduction. New power swap stations will continue to support power grid demand response and optic charging in more regions.
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For the global markets, with the new ET7 being shipped to Europe in August , the order placement and user delivery of our new products will take place in Germany, the Netherlands, Denmark and Norway this year.
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On August 28, Herfey was chosen by our user community as the host city for Neo Day 2022 and the preparation for the event has been officially kicked off. We look forward to sharing with you all the latest progress regarding our products and the core technologies at that time.
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As a player in the smart electric vehicle industry, Neil has been devoted to practicing corporate social responsibility and supporting global sustainable development.
Since the very beginning of our establishment, Neil has been endorsing the Formula Student Electric China and starting from last year, we began to endorse the Formula Student Autonomous China, FSAC. In August this year, Neil officially became a partner of Formula Student Germany. We would like to contribute to the development of young talent in the global automotive industry by supporting this event.
to encourage young innovators to explore business solutions to advance the biodiversity conservation and ecological protection.
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The second half of 2022 will be a critical period for the delivery and production ramp-up of multiple new products of new, which will present huge pressure on the supply chain production, delivery and services. The teams will work closely with other partners.
to improve system efficiency, accelerate mass production and delivery of other vehicles, and ensure high quality product and service experience.
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As always, thank you for your support. With that, I will now turn the floor over to Stephen to provide the financial details for the second quarter. Over to you, Stephen.
Thank you, William.
I will now go over all the key financial results.
The second quarter of 2022.
and to be mindful of the events of this call, as a reference to Army only in my discussion today.
our entire listeners to refer to our audience press release.
which is posted online for additional details.
Total revenues in the second quarter were top 3 billion RMBs, which certainly increased
of 21.8% year over year and 3.9% quarter over quarter. Our total revenues are made of two parts.
vehicle sales, and other sales.
Because sales in the second quarter was 9.6 billion RMB, which is an increase of 21% over a year.
and 3.5% quarter for quarter.
The increase in vehicle sales year over year was mainly attributed to higher deliveries.
The increase in vehicle sales and culture was meaning to them by a higher average selling price.
Other sales in the second quarter were 0.7 billion RMB with an increase of 34.6% EOBY with 8.2% column culture.
The increase in other sales year over year, but many attribute it to increased revenue The rise for auto financing services, sales of service and energy packages, and sales of used car
The increase in other sales code of culture has many attributes to the increased revenue, derived from sales of used cars and also financing services.
We're off-marketing in the second quarter of 2022 by 13.0%.
compared with 18.6% in the second quarter up to between one.
and 14.6% in the first quarter of 2022.
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as attributes to the decrease of vehicle margin and reduction in other sales margin resulting from expanded investment in power and service that works.
The decrease of growth margin for the culture has many attributes to the decrease of vehicle margin.
More specifically, we are commanding the second quarter by 16.7%.
compared with 20.3% in the second quarter of 2021 and 18.1% in the first quarter of 2022.
The decrease of vehicle marketing over the years and the code of culture has mainly attributed increased traffic cost per unit.
which was partially upset by favor over changes in sales mix of 87.
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of 143.3% year over year.
and 22% court of court.
increase the R and X standard year over year and code of culture, add many attributes to increase personal paths, issue migrations, and reduce risk and development functions.
as we're adding incremental design and development costs.
for new products and technologies.
SGN expenses in the second quarter, 2.3 billion RMB, which is an increase of 54% year over year and 13.3% quarter over quarter. In creating SGN expenses year over year.
primary due to the increase.
and the personal costs.
and costs related to sales and service what we do is let other people sign up win this year
increase in SGN extended culture.
but many attributes increase in personal costs and increase in marketing and promotion expenses.
including expenses for the latest launch of EF7.
loss for operations in the second quarter was 2.8 billion RMB
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of 272.8% year over year.
and 30% cord of culture.
Net loss in the second quarter was 2.8 billion RMB with an increase of 369.6% year-over-year and 57.7% quarter of the quarter.
Next up, I should get with the New Year's ordinary shareholders in the second quarter.
for 2.7 billion RMB with an increase of 364% year over year and 54.4% cut off quarter.
All of that is cash and cash recurrence.
apps such as Apple, Brazil
54.4 billion RMB.
of June 30, 2022.
Now let's conclude our prepared remarks.
I will now turn the call over to the operator to participate in our Q&A session.
Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you are on a speakerphone, please pick up your handset to ask a question. For the benefit of all participants on today's call, please limit yourself to two questions. If you have additional questions, you may re-enter the queue.
The first question comes from Tim Sow from Morgan Stanley . Please go ahead.
from Morgan Stanley . Please go ahead.
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So I've got two questions. The first one is about the component supply crunch because the supply bottleneck continuously kept the sales upside of models like ET7. Should we be concerned about any potential hiccups to the productions of models like ES7 and ET5 in upcoming months? And in light of a fresh round of the COVID outbreak in China, what has the new team done so far to hedge the risk of potential disruption?
to the company's upcoming models. And even for next year's, we are going to have the M2 2.0 upgrade for EFA ES6 and EC6. So what have we done to avoid this kind of risk to our production? The second question is about the chipset. Just want to learn that what's your take on the restriction to the export of high-end GPU from companies like NVIDIA and AMD to China? Well, new turn.
the impact to other industries should be pretty limited. But would that accelerate a new plan of semiconductors, the localization in the upcoming models, or even speed up the in-house development of our own chips or functions like autonomous driving in the future? Thank you.
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regions in China in September will also affect our supply chain to some extent. But based on our experience accumulated throughout the March and April shutdown experience in Shanghai, we believe that the COVID-19 impact is under control compared with that of the second quarter. Regarding the mecha-casting component, we believe that the COVID-19 impact is under
The yield rate is below our expectation and this has affected the vehicle deliveries to our users. But we have already taken multiple measures to improve the yield rate of the micro-casting components. For example, we have already sent over dozens of engineers to our suppliers to help them to improve the yield rate. And we have already witnessed some improvements.
At the same time, we have also introduced some new partners for the microcasting components. We believe we have already resolved this issue to some extent at a preliminary stage and we understand properly in October we should be able to resolve this issue at once. Of course, we are very confident about our delivery in the fourth quarter and we are confident to achieve our delivery targets for the whole year.
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very closely with our partner NVIDIA. At the same time we have been keep monitoring the situation very closely. We understand there are also many AI training chipset companies in China who are working on the mass production of their chipset. So we are evaluating different kind of technical solutions for this AI training chipset and we would like to work with different companies on this respect.
Basically we believe this is not going to affect our long-term strategy.
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over capabilities and we believe that this is going to help us to mitigate the political risks and the regulatory risks. At the same time, it can also help us to improve our technology power and also offer growth margin as well.
Thank you.
The next question comes from Ming Sun Li from Bank of America. Please go ahead.
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The second question, actually, in the process of this process, including ETC and ETC, are very good feedback. I want to know a few things. Because now the whole industry of this process is getting more and more fast and the new players are still in the process. So we see how the whole industry is getting closer. Will we be able to add more speed to the new market market and also the future of this process to give some attention to the future. And the other thing is that we saw the media report is still working on that.
very good feedback during the Chengdu Auto Show. But currently there is more competition and product iteration in the industry. Will you speed up the new product launch? And also, could you give some guidance regarding your 2023 new model plan? And can you also share, do you have any plans for the third brand? Thank you.
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in the market. But in terms of the investment, we would like to follow our own strategy and cadence. In terms of the R&D, of course, this is our long-term strategy. We would like to make decisive investments on R&D. This year, we have ramped up our R&D investment to improve our long-term competitiveness. And also for the SG&A, as a percentage of the revenue, we believe that the long-term trend...
is that this is going down and we don't expect to change our pace or our strategy just because of the competitions in the external environment. We would like to make sure we can focus and determine our own strategy and pace.
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For the ET5, we have already showcased the ET5 in different aspects in the Chen Tu Auto Show and other exhibitions and auto shows as well. We have also received a wide range of media coverage for the ET5. ET5 has attracted a lot of attention to the users, the public and the media, and we have also received very good reviews and feedback from the users as well.
Next year, we plan to further launch more products based on the NT2 technology platform. We plan to upgrade our current ES8, ES6 and ES6 to the new technology platform 2.0. We believe with all the products rolled over to the new technology platform 2.0, we will be very confident regarding our market performance at that time.
Because if we look at the ET7, the ES7 and the ET5, we can see the comprehensive competitiveness of the NT2 technology platform. And we have launched many innovations that have been very much welcomed by our users. Of course, at this moment, I cannot share much details regarding the new product launch. And we would like to say that we are going to accelerate the ramp up of our new product based on the new technology platform.
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Regarding the third question, of course, we would like to have more and more users to use our products and enjoy our technologies. But at the same time, we are going to pay attention to the users' needs and the demands at different price ranges and users of different brands may have different needs regarding the products and the technologies. and all the other services such as chief khaki or an advanced application We are taking those
So for us, we would like to have more smart, easy users to experience our products and enjoy the benefits of those core technologies. And we will make devices for planning regarding this.
Thank you.
Our next question comes from Bin Wong from Credit Suisse. Please go ahead.
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My first question is about the four year volume guidance. Basically you already proved with the guide that second quarter of this year, the volume guidance will be 100,000 units. If you are considering your third quarter guidance, that means that in the last quarter, number four quarter, your volume will be roughly around 68,000 units. That should probably say in October 20K, in November 22K and December 24 to 25K.
is that the right way to think about your volume and progress? That's number one question. And then the choice about the order backlog, we actually do some data visit to call dealers. They told me that they got three to four months waiting list for all the new products, say ES7, ET7 and ET5. So can I assume you got 15K order for ES7, 15K for ET7 and roughly 55 for ET5. So together you got an 80K order backlog.
That is the right way to think about the auto backlog. That's the second question. And last one is about the margin outlook in the number three quarter. Basically, the second quarter guidance previously started with the decline of 3 to 4%, Q&Q. By the way, now the margin seems to be better than your guidance, right? So what's your outlook for the number three quarter? You actually have been raising the price two times for the old product.
Should the third quarter cross margin return to the level in the first quarter this year? Thank you.
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Thank you.
Next thing for question. Previously I've also mentioned that we will try our best to meet the delivery target for this year. Of course this means that the fourth quarter is going to witness a lot of pressure and the challenges on over delivery and the supply. We have already started to make the preparations for the delivery starting from the third quarter. We believe starting from the fourth quarter we're going to have the two.
lower compared with the factory one because the factory two will only need to manufacture one product that is the AT5. So we believe in the fourth quarter we're going to break records every month and we are competent to achieve the record-breaking target for the fourth quarter and we have been making active preparations to make this a target as well.
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and we hope to see you again soon.
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Actually, we haven't the default.
Yes, regarding the specific order information, we believe we haven't disclosed this information for a long time because different companies have different definitions and understandings regarding the orders. But what I can say now is we have a sufficient order backlog regarding the ES7 and the EP7. Actually, for the ES7, we believe the order performance is actually much better than of expectation.
For the third question, Balder.
Okay, for the third question about the growth profit margin of Q3, the second half year, the company has taken multiple measures to improve our growth margin profits and we raised the selling prices of certain vehicle models like ES8, ES6, ES6 and ES7 and most of the positive impacts will be reflected in Q3.
Most of ES7 starting to be delivered in Q3 are first edition with higher price and margins. So we expect a slight increase of vehicle margin in Q3 but in short term we are still facing
great uncertainty and challenges regarding the battery cost, which will have a negative impact to our growth margin.
Thank you.
Thank you.
The next question comes from Jeff Chung from Citi. Please go ahead. The next question comes from Jeff Chung from Citi.
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production capacity, how many ET5 we can produce in December , and what is the pace on ET5's ramp up from October to December ? This is the first question. And the second question is about the overall production ramp up from September to December . So our third quarter guidance implied the September runway should be accelerated by 15% month-to-month. So in order to meet our full year's target
the October to December month-on-month run rate has to be at least 30% month-on-month every month. So should we expect a straight line ramp up or a accelerating pace? That's a December , November portion could be more critical rather compared to October . Thank you. Thank you.
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production capacity ramp up, everyone understand this will need some time and there's a process especially when it comes to new products, production ramp up. At the beginning, it will start at a relatively low volume and then it can accelerate to a stable level. We have already made sufficient appropriations for the mass production of the ET5. And we believe the ET5 will have the opportunity to...
Previously, I have also mentioned that in October , the supply chain bottleneck will be resolved for the ES7 and the ET7. Around that time, we will also ramp up the production of the ET5. It means that we're going to see the delivery volume to gradually ramp up. But at this moment, we cannot predict with certainty because there are many factors.
outside of our control. But in the past few years, we have experienced many challenges and extreme situations in the past. We have accumulated lots of experiences. So our team knows how to handle those challenges and ramp up our productions, admit those challenges. We believe in the fourth quarter, of course we're going to experience many pressure in terms of the supply chain and the production, but the...
Thank you. Thank you.
So my question is if the production capacity can reach 10,000 units a month. Yeah, OK.
Yes, of course for the reservation orders, there are some fluctuations and uncertainties.
The next question comes from Edison Yu from Deutsche Bank. Please go ahead.
Thanks for taking the question. First one, we noticed that William visited the US last month and were wondering what kind of decisions or perhaps considerations were taken while he was there, perhaps earlier entry into the US.
And then the second question is, the original plan was to introduce a solid hybrid battery pack, I believe in the fourth quarter. Is there any updates to this? Is it still on track?
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of the San Jose R&D Center back in 2015. Because of the COVID-19 situation, I haven't been able to visit our colleagues in the US for several years. We actually have hundreds of colleagues here based in the US and we also have colleagues based in Europe . So this time I would like to visit our colleagues here in the US and then I will also go to Europe to visit our colleagues over there. For the US market entry, we have been making preparations.
regarding the US market entry. And we have been making comprehensive appropriations based on our plan and the strategy for the US market. US market is quite different from the China market and also the European markets. The US market is very competitive and the regulatory environment is also quite different from China and the Europe .
We have been making long-term thinking and appropriations about the US market entry and we believe that the strategy part is to make comprehensive appropriations and to be patient. Of course, there isn't much detail that we can disclose at this moment, but we believe that we have a clear strategy for the US market entry and we just need to be patient for the execution. Thank you.
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For the 150 kilowatt hour semi-solid state battery pack, this battery pack offers a very high power density and we are making comprehensive evaluations of this semi-solid battery pack. We are making preparations for the production of this battery pack together with our partners. According to our current evaluation, we believe that probably we're not...
We are not going to provide this service to other users in the fourth quarter. And according to the current evaluation, this battery pack will be delayed for several months. Of course, we have been working with our partners to evaluate the progress and this is the current situation that we will try to work with our partners to improve the situation.
Thank you everybody.
Sound pervasive.
The next question comes from Paul Gong from UBS. Please go ahead. Hello everyone.
So two questions for me. The first one is, have you realized that there might be some orders that has been placed by certain people who is not really intending to get the vehicle but just to jump the queue and try to...
from suppliers, especially from the batteries and other components. There are more colors management can share compared to quarter circle.
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the Thanks for your question. Regarding the first question, of course, if we cannot meet the user demands in a timely manner, then probably some users may transfer their orders to others. But we have a very strict policy regarding the order transfer. So we believe there will be very few cases for the order transfer and the percentage of order transfer.
to make a profit, this percentage should be quite low because of all those different mechanisms we have in place.
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For the mass market brands, previously we have already discussed about overplans for the mass market brands. Currently the R&D progress is on track. Overplans for the mass market products is to follow the schedule and the cadence of our latest technology platform, that is the new technology platform 3.0. We are going to launch the mass market.
products based on the new technology platform 3.0. Yes, probably from the media and the supply chain, there have been some discussions about the third brand of NIO. Actually, in the past, we have recognized that if we want to accelerate the conversion from the ICE to ED, we want to provide more products to cater to different users in the industry.
combining the innovative technologies with the user experience and provide a very innovative experience to our users. We have identified some opportunities for us to make innovative technologies and blended together with other business models to provide services to the users and provide different kinds of products to a wider range of user groups and communities.
So at this moment, we cannot disclose much information about this, but what I can say is that we do believe that there are some opportunities for us to explore.
Thank you so much.
This concludes our question and answer session. I will now hand the call back to Ms. Yves Tang for closing remarks.
Thank you once again for joining us today. If you have further questions, please feel free to contact the NIO's investors relations team through the contact information provided on our website. This concludes the conference call. You may now disconnect your line. Thank you.
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